Will the increase in lumber prices have a tangible influence on the construction industry, particularly as far as finished products such as private houses are concerned? Will a new home cost more? RenoAssistance takes a deeper look into this matter.
Are the good times over?
Located in the Quebec, Le Chateau Montebello is a true marvel. The largest log structure in the world, it took 10,000 red cedar trunks to finish it with 3,000 workers involved in the construction process. Would such an undertaking, which began in 1930, be possible today, given the trade disputes between Canada and the United States, and the multiplying effects of the pandemic?
Unbelievable price increase
Since December 2019, the price of structural materials (beams, half-timbering and columns) has increased by 70%. A stark contrast from what was happening just a few years ago when lumber prices were plummeting (2018).
Several factors explain this increase. First, because of COVID-19, several producers have had to reduce their production due to staff shortages. With sawmills still operating but at a slower pace and with reserve stocks being high, the producers were not overly concerned even though the United States, Canada’s largest trading partner, buys nearly 75% of Canadian lumber. Then, the COVID-19 pandemic inspired many folks confined to their homes to start renovations. Next thing we know, these home improvement stores, which remained open, are being taken by storm in the spring and summer by contractors and homeowners alike. The result: thousands of decks and fences redone! As a consequence, there is now barely any treated wood on the market and structural lumber sells for more than three times its pre-Covid price.
How does this affect home prices?
Can a home builder or home addition contractor request an increase in the selling price or project price between the date of signing the contract and delivery due to rising material costs? It is entirely possible. The contract can in fact allow for various increases that may change the final price once all the parties have signed the purchase agreement.
For many home builders and contractors, the rising cost of structural lumber can represent an additional $12,000 to $24,000 to the final cost of a home or project. This can reduce profits. We can therefore conclude that some contracts that have not yet been signed, buyers may experience a final price adjusted to this new reality.
Similar to… toilet paper?
For Michel Vincent, the economist at the Quebec Forest Industry Council (QFIC), the current shortage of structural materials is reminiscent of the last spring’s toilet paper buying craze. “A lot of people ended up at home with fewer expenses and more free time. And so my brothers-in-law got involved in all kinds of renovation projects. Folks would go to these home improvement stores and see planks being sold like hotcakes. Everyone started buying more and more, anticipating a possible shortage, but there was no real shortage, ’’ adds Vincent. There was, he says, a drop in production, but the stocks were still high. Some other factors may have suggested a shortage, such as delivery problems due to the lack of staff. In contrast, in western Canada, lumber production was severely affected by natural phenomena, such as frequent forest fires and insect infestation. In Ontario and Quebec, inventories have fallen significantly, which could affect the cost of a new home or major renovation project. New home price increases are particularly high in Ontario.
A return to normalcy
While several large builders have made provisions fearing the shortage, experts are reassuring about the short-term future of wood materials. “Since September, he said, the inventory levels have become stable again. The production of raw timber is slowly resuming and the fears are starting to fade. As a result of COVID-19, many of our US markets are completely shut-down, leaving a lot of opportunity for the domestic market”. Michel Vincent reminds us that if home sales have exploded this spring and summer, it is because the entire market consisted mainly of existing homes, causing structural material prices to drop. Therefore, even if manufacturers had to absorb a loss in profits, it would only be temporary and would disappear as soon as the balance returns. By then, we can say with confidence that 2020, however bad it was in general, was an exceptional year for home renovation centers.
A bright future for structural lumbar
Launched in 2013 and supported by the Quebec provincial government of Pauline Marois, the programs aiming to build more high-rise buildings (two floors or more) have been very successful. Recently, the Legault government also launched a school construction program using as much wood as possible as its basic material. However, is this realistic? Yes, it is, Michel Vincent agrees. “The craze is still there and we will not give up on all-wood buildings. Moreover, large-format wooden constructions are very popular. And we have all the technology to produce oversized beams “. Wood, the ecologically friendly material, captures CO2 and traps it for hundreds of years, improving the air quality in buildings, says Vincent.
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